Source: PaxForex Premium Analytics Portal, Fundamental Insight
Verizon Communications has quietly positioned itself as a turnaround story, with shares rising an impressive 35% from their 52-week low. The telecom giant’s strategic efforts to streamline operations and concentrate on core strengths are proving effective. Robust wireless service revenue growth and an improving cash flow outlook support the stock's 6.5% dividend yield.
These themes will be in sharp focus when Verizon reports its second-quarter results on July 22 (for the period ending June 30). Key metrics will be closely watched to assess if it's an opportune time to invest in Verizon shares.
In recent years, Verizon has grappled with challenges stemming from a shifting macroeconomic environment and fierce competition from AT&T and T-Mobile US. Declines in business wireline and equipment sales have hindered growth, and the mobility business has underperformed. Despite this year's rally, the stock remains over 30% below its all-time high.
However, recent trends are promising. Verizon kicked off 2024 with its best first quarter for consumer postpaid phone net additions since 2018. Management credits this to the success of its "myPlan" offering, which allows customers to customize their plans with bundled features such as cloud storage and entertainment subscriptions.
A standout metric is the wireless retail postpaid average revenue per account (ARPA), which climbed to $135.75 in Q1, a 3.1% increase year over year.
Verizon's ability to maintain premium pricing while keeping churn stable resulted in a 1% revenue growth for the consumer segment in Q1, offsetting a 2% decline in the smaller business segment. Free cash flow in Q1 rose to $2.7 billion from $2.3 billion the previous year.
Another strong area for Verizon is the adoption of its fixed wireless access (FWA) internet connections, delivered via 4G LTE or the 5G Ultra Wideband network. Customers favor FWA as an alternative to fiber optic cables due to its ease of deployment, reliability, and flexibility.
Optimism is growing that Verizon is finally aligning its long-term strategy correctly. The company projects full-year adjusted EBITDA growth of 1% to 3% from 2023. Additionally, cash flows are expected to increase as capital expenditures normalize, following years of substantial investment in the 5G infrastructure, which now benefits from greater scale.
The market will be closely monitoring Verizon's ability to sustain its operational and financial momentum into the second half of the year.
Wall Street estimates indicate Verizon will report a Q2 revenue growth of 1.4%, bringing total revenue to $33.1 billion. Although this modest growth may not be particularly exciting, crucial performance metrics such as broadband net additions and wireless retail connections could play a more significant role. A robust update from management would reinforce Verizon's standing in the telecom sector.
However, data pointing to softer consumer spending in the U.S. and a weak environment for smartphone sales could keep Verizon's headline sales figures muted.
Verizon may have the potential to exceed expectations in earnings per share (EPS). The consensus estimate for Q2 EPS stands at $1.15, representing a 4.8% decline compared to Q2 2023. Verizon's ongoing cost-efficiency initiatives could enhance profitability, resulting in strong margins this quarter, which would positively affect the stock.
Ultimately, Verizon's stock movement following the earnings report will likely hinge on the tone set by management during the conference call.
There is potential for Verizon's shares to rise further over the next year. The stock's high-yield profile is bolstered by the company's industry leadership, solid fundamentals, and an improved growth outlook. Additionally, potential declines in interest rates could make Verizon's dividend even more appealing.
Given the typical volatility surrounding earnings reports, one strategy to mitigate risk is to buy shares gradually and dollar-cost average into a position.
As long as the price is above 39.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 41.30
- Take Profit 1: 42.00
- Take Profit 2: 43.00
Alternative scenario:
If the level of 39.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 39.00
- Take Profit 1: 38.00
- Take Profit 2: 37.00
